Developing a Cryptocurrency: How to Start Your Own Coin
If you’re interested in cryptocurrency and want to become more involved in the movement, you may have considered starting your own coin. Essentially, cryptocurrency is a decentralized digital currency that uses encryption to protect user privacy and keep track of transactions.
While developing a cryptocurrency can come with challenges, there are a whole host of benefits to doing so, including reducing costs and fraud risk, increasing transaction anonymity, and providing you with a new customer base.
Although Bitcoin may still be the cryptocurrency with the biggest name recognition, many new cryptocurrencies are breaking onto the scene as more and more people become interested in moving beyond the world of fiat currency. Developing your own form of cryptocurrency can be a great way to cash in on this interest and develop skills and knowledge in this burgeoning field.
Table of Contents
- 1 Creating a New Cryptocurrency
- 2 Alternatives to Developing a Coin From Scratch
- 3 Legal Considerations
Creating a New Cryptocurrency
If you’re thinking of creating a new cryptocurrency, there are a few things you should keep in mind throughout the process. Clearly defining your objectives and making well-informed choices when it comes to platform and structure can help you ensure that your new cryptocurrency is a success.
Define Your Objectives
When embarking on any new business venture, it’s important to define your objectives. What are your business interests? How will your cryptocurrency facilitate business growth? While developing a cryptocurrency can have many benefits, it’s important to be clear about what your goals are and what you hope to gain from this endeavor.
Some common objectives when it comes to developing a new cryptocurrency include facilitating transactions, raising capital, nurturing investments, and becoming more involved in the cryptocurrency community. Cryptocurrency also offers many related benefits, including the use of smart contracts, data authentication, and an emphasis on security and privacy.
Use a Consensus Algorithm
Part of the worth of major cryptocurrencies like Bitcoin and Ethereum is tied to their security and reliability, both of which can be largely attributed to their consensus algorithms. Consensus algorithms facilitate agreement among nodes and decide whether a distributed transaction will be committed to the database.
These algorithms help to ensure reliability when it comes to a network that spans many different nodes. There are a variety of different common consensus algorithms, including pBFT (practical Byzantine Fault Tolerance), PoS (proof-of-stake), and DPoS (delegated proof-of-stake).
Choose a Platform
Your choice of a consensus algorithm will affect your options when it comes to selecting a blockchain platform. There are several different popular platforms currently available. Ethereum is one of the top-ranked platforms, and utilizes the blockchain and smart contracts to help ensure safety and privacy. Hyperledger is another popular option, and it’s good for beginners looking to start their blockchain experience. A variety of established companies including IBM, Mastercard, and Amazon also offer blockchain platforms.
Designing the Structure
When developing a new form of cryptocurrency, it’s important to design the nodes and internal architecture in a way that facilitates your cryptocurrency’s purpose. There are several main points you’ll need to consider, including:
- How will permissions on nodes be handled? Will they be private, public, or hybrid?
- Where will nodes be hosted? On-premises? On the cloud?
- What kind of hardware will you need to support the cryptocurrency?
- What base operating system will you use?
If you’re not an informed and experienced coder with cryptocurrency expertise, it may be a good idea to work with a professional who can help walk you through this process and use APIs to help streamline development.
Making It User-Friendly
Even the best-designed cryptocurrencies need to be user-friendly to attract and maintain an active and engaged user base. To maximize user experience, you’ll need to customize the user interface so that it is as accessible as possible. Common user interface problems include complicated onboarding processes, the difficulty of use, and unorganized storage protocols.
There are a variety of free designs, themes, and templates online that can help facilitate this process. However, most themes and templates will need to be tinkered with to meet your users’ precise needs and to mesh with your own design specifications.
Alternatives to Developing a Coin From Scratch
As you can see from above, developing a cryptocurrency coin is an intensive process, and often necessitates a team of experts along with thousands of dollars.
If creating your own coin is too much of a professional or financial obstacle, you can instead opt to create a Bitcoin fork or your own token. These are substantially simpler processes that may nevertheless suit your needs when it comes to utilizing the many benefits of personalized cryptocurrency.
Creating a Bitcoin Fork
Creating a Bitcoin fork is a reasonable compromise between creating a new form of cryptocurrency from scratch and simply using an existing cryptocurrency. A Bitcoin fork uses already-existent open-source code as its basis, and then introduces a few key modifications to create a new form of cryptocurrency.
To create a Bitcoin fork, you should first find the currency that is closest to your desired coin in terms of features. Then, decide what aspects of the coin you want to change or modify for your own purposes. While this still requires the expertise and coding knowledge necessary to implement these changes, it’s usually a much simpler process than creating an entirely new cryptocurrency from the ground up.
Coins vs. Tokens
Another option when it comes to developing a new cryptocurrency is to create your own token. While the terms are sometimes used interchangeably, coins and tokens are actually different things. A coin represents a particular form of cryptocurrency, such as Bitcoin, Ethereum, Ripple, or others. Coins operate on their own blockchain and have their own independent transaction ledgers. Tokens, meanwhile, operate on top of an existing blockchain infrastructure.
Tokens are essentially smart contracts representing any asset you choose, rather than a fully-fledged coin. If coins represent actual currency, tokens are something closer to rewards points or airline miles, which can be redeemed during certain transactions but aren’t eligible to be used elsewhere. While tokens don’t have as much flexibility as coins, they have the significant benefit of being much easier to develop.
Responsible crypto developers should be aware of their legal obligations. This can help to ensure that you’re compliant with tax laws and other regulations, and may help to prevent any potential legal trouble in the future. Because cryptocurrency is a relatively new phenomenon, new legislation is still being passed regarding it.
Most cryptocurrencies are still in development, and don’t yet have any real-world uses or value. Once your cryptocurrency becomes valuable, however, you’ll be expected to track its growth. As your cryptocurrency grows in value, you’re required to calculate those gains when it comes to tax time.
Keep Apprised of Regulations
Regulations surrounding cryptocurrency are likely to change with time. Staying abreast of these changes will help cryptocurrency creators stay legal, and give prospective creators warning if future regulations make the process a less tantalizing value proposition. The Library of Congress keeps track of various cryptocurrency regulations around the world, along with frequent updates in regard to any potential changes.
While developing a new cryptocurrency comes with its own unique challenges, it can be a rewarding and lucrative process. Even if you’re not yet ready to build a new coin from scratch, you can experiment with other forms of cryptocurrency development, including Bitcoin forks and cryptocurrency tokens. Although the cryptocurrency industry is still relatively volatile, it has a bright future, making this a great time for savvy developers to hop on the bandwagon.
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This post was updated January 15, 2020. It was originally published January 15, 2020.